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Will real estate ever be normal again?

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Re: Will real estate ever be normal again?

#461

Post by snidane »

rsj_hn wrote: post #438
mebassett wrote: post #435

Earlier quoted context omitted.

Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)

The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy. Adam Smith explored the labor theory of value in the context of primiti…

Unfortunately none of the modern economic theories apply to real estate, because it is a land market in disguise and has little to do with housing.

Price of land is determined when looking at the world as a whole (margin of production), so it can't be measured in a simple microeconomic laboratory experiment.

It can actually be studied using models, but one would have to go back to Smith and Ricardo and add the third factor of production (land) back into the equation. Which was removed by marginalists for simplification to study simple markets of bananas and yogurts.

The modern economic foundations simply don't have the tools to study land markets, so they will always fall into the trap of a drunk man looking for keys under the lamppost only.

Re: Will real estate ever be normal again?

#462

Post by bumby »

willis936 wrote: post #246
bumby wrote: post #236

Earlier quoted context omitted.

If you’re spending that large of a percentage on housing you’re already running against most prudent financial advice and probably shouldn’t be thinking of housing as an investment asset

I live in the real world, not the fantasy one they haves think exist. I understand where you're coming from though. You wouldn't want social mobility to become the norm.

You may want to revisit the HN guidelines.

With that aside, I absolutely do want to foster social mobility. I actually think it’s still possible but probably not in the dream-world way many people think where it comes completely on their own terms. In most cases, it involves avoiding a few basic things like substance abuse, onerous debt, living outside ones means, and having kids before one is financially stable.

But that often flies in the face of what people emotionally want or are told to pursue, so sometimes people want to go into massive debt for depreciating assets or to go to college because that’s what “everyone” does, or to live in an expensive, trendy area because it’s cool or they think that’s where they need to be to chase status. Barring those types of mistakes, social mobility (towards the upper middle class level at least) is generally available. I’m willing to bet many people on HN are already close to that status even if it doesn’t feel like it because they’re comparing themselves to economic outliers rather than the average citizen.

Re: Will real estate ever be normal again?

#463

Post by tedk-42 »

arcticbull wrote: post #122
uejfiweun wrote: post #45

The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. 2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently pr…

This is only part of the problem - and a small part of the problem at that. The real problem as always is zoning. Houses cost roughly the same on a $/sqft basis, adjusted for inflation, as they did in the 1970s. They're more expensive now because outside of town they're twice as big on average [1] - in part due to zoning rules. In town, zoning rules preclude densification necessary for supply to meet demand [2]. And,…

Please stop. Zoning issues/lack of supply would imply that there are lots of homeless people without a roof over their head.

Investors have too much access to property. It's a system of greed that benefits those who entered the market early (typically boomers).

Just stop blaming zoning already.

Re: Will real estate ever be normal again?

#464

Post by nly »

kelnos wrote: post #180
ab_testing wrote: post #145

Earlier quoted context omitted.

Canada already did #2. Average home prices in almost all metro areas are around 10x yearly income. There is no blood on the streets and it is still considered a destination country.

10x isn't terrible, though, is it? Assuming 20% down on a mortgage, if you're frugal, you can save for a down payment in 4 or 5 years or so. Not ideal, of course, but not impossible. In some places in the US folks could save for a decade or more and still not be able to afford a down payment.

What? Save 2x (20% of 10x) your annual income in 5 years? What planet are you on where you think people can save 40% of their net income, let alone gross

And even if by some miracle you save 2x for a 20% deposit, what bank will lend you 8x income for the rest ?

Complete fantasy

Re: Will real estate ever be normal again?

#465

Post by snidane »

blip54321 wrote: post #121
wombatpm wrote: post #114

Earlier quoted context omitted.

In the early 80s a 13% mortgage rate was not uncommon. People survived. Very little blood was spilled

There's a world of difference between high interest rates (which are good and healthy) and rising interest rates (which implode the economy). You gotta look at the derivative. Rising interest rates are really, really bad. Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. I kinda wish I entered the economy when we still had 12% interest rates. Each time a reces…

Even worse than rising interest rates is a society addicted to the fentanyl of zero interest rates.

There is a reason major religions regulated debt in general, because that is how societal slavery develops. Of course we, the modern people of technology, 'know better' than our primitive ancient ancestors.

Re: Will real estate ever be normal again?

#466

Post by imtringued »

rsj_hn wrote: post #438
mebassett wrote: post #435

Earlier quoted context omitted.

Wealth of nations, book 1, actually. "toil and trouble" could be interpreted as "labour". I certainly take that interpretation. though Smith really didn't make much use of the labour theory of value, as he thought it would be less relevant in an advanced economy. Riccardo and especially Marx developed and used it much more. (For Marx see the first part of Capital)

The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy. Adam Smith explored the labor theory of value in the context of primiti…

Honestly, I am disappointed with Marx. For every day people only two things really matter. Fix money (usury and debt) and land. Once you do that, there is no need for a communist utopia.

Re: Will real estate ever be normal again?

#467

Post by drdec »

jbay808 wrote: post #283
drdec wrote: post #173

Earlier quoted context omitted.

Inflation can be good for young people. If you really think there will be significant inflation, go buy a house, borrow more than you are comfortable with it necessary. Inflation will make the debt easier to deal with in time.

This might be true in the USA where you can get a fixed rate mortgage. It might not be true elsewhere. I recommend doing your own research.

Yes, I agree that a fixed rate mortgage is a necessity for this strategy.

Re: Will real estate ever be normal again?

#468

Post by snidane »

hogFeast wrote: post #174
listenallyall wrote: post #147

Earlier quoted context omitted.

> Anyone who relies on revolving business debt, credit card debt, or other non-fixed-rate debt goes bankrupt. This is hyperbole. Rising interest rates aren't fun, but they aren't cataclysmic. Rates have gone up and down for decades. Further, if you signal that you're taking the option to raise rates off the table, risk tolerance and asset prices will explode (some would say this has already happened due to Fed signal…

To explain more about the logic used by the guy you replied to... ...the problem is people think: interest rates go up, economy slows down, we can never raise interest rates. This logic takes on a life of its own. The US economy was in this position in the late 60s: the Fed was under pressure to accommodate govt financing, they raised rates in 1959 and were blamed for causing a recession that influenced the outcome o…

The apparently only empirical study relating interest rates and growth was done by Richard Werner, concluding growth actually historically happened in high interest rate environments, whereas the current economic dogma states exactly otherwise.

https://youtu.be/JD2z4l1DiBw

Re: Will real estate ever be normal again?

#469

Post by r00t4ccess »

Robotbeat wrote: post #274
uejfiweun wrote: post #45

The Fed at this point controls the whole economy and they have two options: 1. Raise interest rates and stop printing. Crazy inflation stops, but asset prices crash and we enter a major recession or depression. The end result will likely be unrest and blood in the streets. 2. Do nothing, keep printing. Inflation picks up massively. The economy keeps humming along but young people, including myself, are permanently pr…

So, I’m 36, and I promise you don’t want a deep recession. Cheap housing doesn’t matter if you don’t have a job. We dodged a freaking bullet economically with COVID. We recovered quickly. Heck, even in 2008 we did better than the countries that tried fiscal or monetary austerity. And yeah, the real enemy is zoning. It’s fun to blame Blackrock, and they deserve it, but it’s regular homeowners trying to restrict more h…

I am also 36 and zoning is not stopping me from buying a house, lack of trucking to move out of state is because I want my stuff to actually show up in a reasonable amount of time.

Re: Will real estate ever be normal again?

#470

Post by imtringued »

snidane wrote: post #461
rsj_hn wrote: post #438

Earlier quoted context omitted.

The idea of "value" independent of price is something treated by Marx as a normative claim that neither Adam Smith or Ricardo developed. When Ricardo or Adam smith talked of "value", they just meant "price" but in some notional unit of currency which was irrelevant to the discussion at hand. E.g. they wanted to discuss prices in a barter economy. Adam Smith explored the labor theory of value in the context of primiti…

Unfortunately none of the modern economic theories apply to real estate, because it is a land market in disguise and has little to do with housing. Price of land is determined when looking at the world as a whole (margin of production), so it can't be measured in a simple microeconomic laboratory experiment. It can actually be studied using models, but one would have to go back to Smith and Ricardo and add the third…

What a coincidence! I was thinking about land being the forgotten third factor of production. Thanks for confirming that thought.
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